A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 185 pounds of M and 210 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Material Standard Quantity (lbs) Standard Cost/lb. Total Cost
O 0 $0.10 $0
H 125 0.08 10.00
M 75 0.02
1.50 200 $11.50
Is the material mix variance favorable or unfavorable

The material mix variance unfavorable.

Explanation:

This can be determined using the following 3 steps:

Step 1: Calculation of the total Standard Cost of Actual Mix of the 3 materials

Standard Cost of Actual Mix of material O = Units of material O used * Standard cost of material O = 210 * $0.10 = $21

Standard Cost of Actual Mix of material H = Units of material H used * Standard cost of material H = 0 * $0.08 = $0

Standard Cost of Actual Mix of material M = Units of material M used * Standard cost of material M = 185 * $0.02 = $3.79

Total Standard Cost of Actual Mix of the three materials = Standard Cost of Actual Mix of material O + Standard Cost of Actual Mix of material H + Standard Cost of Actual Mix of material M = $21 + $0 + $3.79 = $24.70

Step 2: Calculation of the total Standard Cost of Standard Mix of the 3 materials

Standard Cost of Standard Mix of material O = Standard Units of material O * Standard cost of material O = 0 * $0.10 =  $0

Standard Cost of Standard Mix of material H = Standard Units of material H * Standard cost of material H = 125 * $0.08 = $10

Standard Cost of Standard Mix of material M = Standard Units of material M * Standard cost of material M = 75 * $0.02 = $1.50

Standard Cost of Standard Mix of the three materials = Standard Cost of Standard Mix of material O + Standard Cost of Standard Mix of material H + Standard Cost of Standard Mix of material M = $0 + $10 + $1.50 = $11.50

Step 3: Calculation of material mix variance

Material mix variance = Total Standard Cost of Actual Mix of the three materials - Standard Cost of Standard Mix of the three materials = $24.70 - $11.50 = $13.20

Since the Total Standard Cost of Actual Mix of the three materials is greater than Standard Cost of Standard Mix of the three materials (i.e. by $13.20), this implies that the material mix variance unfavorable.

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